What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-24 compared with 2022-02-24 · 504 added, 454 removed, 1741 unchanged (35% of the section changed)

45 unchanged sentences

The management of Home BancShares, Inc.

(the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Company’s financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

(the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Company’s consolidated financial statements for external purposes in accordance with U.S.

The Company's internal control over financial reporting includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S.

GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, the Company conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2022.

In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2021 is effective based on the specified criteria.

BKD, LLP, Little Rock, Arkansas, (U.S.

Based on management's assessment and those criteria, which excluded the operations of Happy Bancshares, Inc.

("Happy") as noted below, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2022.

In conducting the assessment of the effectiveness of its internal control over financial reporting as of December 31, 2022, the Company has excluded the operations of Happy as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period).

In conducting the assessment of the effectiveness of its disclosure controls and procedures as of December 31, 2022, the Company has excluded those disclosure controls and procedures of Happy that are subsumed by internal control over financial reporting.

The acquisition was completed on April 1, 2022.

As of December 31, 2022, Happy's assets represented approximately 16.9% of the Company's total consolidated assets.

Business Combinations" for further discussion of the merger and its impact on the Company's consolidated financial statements.

FORVIS, LLP (formerly BKD, LLP), Little Rock, Arkansas, (U.S.

PCAOB Auditor Firm I.D.:

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We have audited the accompanying consolidated balance sheets of Home BancShares, Inc.

(the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 24, 2022, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of New Accounting Standard

As discussed in Notes 1 and 5, to the consolidated financial statements, the Company changed its method of accounting for the allowance for credit losses in 2020 due to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and the related amendments.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting .

Basis for Opinion

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Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statement.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex auditor judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

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• Evaluated the qualitative adjustments, including any additional factors utilized for specific identified risks and assessed the reasonableness and basis for adjustments

• Evaluated the accuracy and completeness of Topic 326 disclosures in the consolidated financial statements

Business Combination Accounting

Critical Audit Matter Description

As discussed in Note 2 , the Company completed the acquisition of Happy Bancshares, Inc.

(Happy) and merged Happy State Bank into Centennial Bank on April 1, 2022.

Management determined that the acquisition qualified as a business and accordingly, all identifiable assets acquired and liabilities assumed were valued at fair value, resulting in additional goodwill of approximately $421.3 million.

The identification and valuation of such acquired assets and assumed liabilities requires management to exercise significant judgment and consider the use of third-party specialists to estimate fair values.

Auditing management’s estimates of the fair value of assets acquired and liabilities assumed involved a high degree of subjectivity due to the significant judgment applied, the sensitivity to underlying assumptions in determining fair value and assessing the appropriateness of the third-party specialists’ models.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the fair value of assets acquired and liabilities assumed included the following procedures, among others:

• Obtained and reviewed the Merger Agreement to gain an understanding of the underlying terms of the acquisition

• Obtained an understanding, evaluated the design and tested the operating effectiveness of acquisition accounting controls, including but not limited to, management’s review of valuation results provided by outside vendors

• Obtained and reviewed management’s business combination accounting analysis to gain an understanding of adjustments recorded

• Tested the mathematical accuracy of the adjustments included in the business combination accounting analysis focusing on the completeness and accuracy of the balance sheet acquired and related fair value

• Obtained valuation estimates prepared by management and the Company’s valuation specialists.

With the assistance of our valuation specialists, challenged the appropriateness of the valuations allocated to assets acquired and liabilities assumed, including but not limited to, testing of critical inputs, assumptions applied, and valuation models utilized

• Recalculated goodwill

• Evaluated the accuracy and completeness of disclosures in the consolidated financial statements

/s/ FORVIS, LLP

(Formerly, BKD, LLP)

We have served as the Company’s auditor since 2005.

6 unchanged sentences

Opinion on the Internal Control Over Financial Reporting

We have audited Home BancShares, Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by COSO.

We have audited Home BancShares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, and our report dated February 24, 2023, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

As described in Management’s Report on Internal Control over Financial Reporting , the scope of management’s assessment of internal control over financial reporting as of December 31, 2022, has excluded Happy Bancshares, Inc.

acquired on April 1, 2022.

We have also excluded Happy Bancshares, Inc.

from the scope of our audit of internal control over financial reporting.

Happy Bancshares, Inc.

represented approximately 16.9% of consolidated total assets as of December 31, 2022.

Definitions and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ FORVIS, LLP

(Formerly, BKD, LLP)

Little Rock, Arkansas

6 unchanged sentences

Cash and cash equivalents 724,790 3,650,315

Investment securities – available-for-sale 3,119,807 2,473,781

Investment securities – available-for-sale, net of allowance for credit losses 4,041,590 3,119,807

Investment securities – held-to-maturity, net of allowance for credit losses 1,287,705 —

Total investment securities 5,329,295 3,119,807

Loans receivable 14,409,480 9,836,089

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Goodwill 1,398,253 973,025

Core deposit and other intangibles 25,045 30,728

Core deposit intangible 58,455 25,045

Other assets 321,152 177,020

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Retained earnings 1,443,087 1,266,249

Accumulated other comprehensive income 10,462 44,120

Accumulated other comprehensive (loss) income ( 305,458 ) 10,462

Total stockholders’ equity 3,526,362 2,765,721

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Net interest income 758,676 572,971 582,555

Provision for credit losses — 112,264 1,325

Provision for credit loss - unfunded commitments ( 4,752 ) 16,989 —

Provision for credit losses on loans 50,170 — 111,422

Provision for credit losses on unfunded commitments 11,410 ( 4,752 ) 16,989

Provision for credit losses on investment securities 2,005 — 842

Total credit loss expense 63,585 ( 4,752 ) 129,253

9 unchanged sentences

Gain on sale of SBA loans 183 2,380 645

(Loss) gain on branches, equipment and other assets, net ( 105 ) 326 ( 3 )

Gain (loss) on branches, equipment and other assets, net 15 ( 105 ) 326

Gain on OREO, net 500 2,003 1,132

Gain (loss) on securities, net 219 — ( 2 )

Gain on securities, net — 219 —

Fair value adjustment for marketable securities ( 1,272 ) 7,178 ( 1,978 )

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Other comprehensive (loss) income ( 315,920 ) ( 33,658 ) 27,899

Comprehensive income $ 285,363 $ 242,347 $ 320,034

Comprehensive (loss) income $ ( 10,658 ) $ 285,363 $ 242,347

See accompanying notes.

7 unchanged sentences

Comprehensive

Balances at January 1, 2019 $ 1,707 $ 1,609,810 $ 752,184 $ ( 13,815 ) $ 2,349,886

Balances at December 31, 2019 $ 1,664 $ 1,537,091 $ 956,555 $ 16,221 $ 2,511,531

Cumulative change in accounting principle (adoption of ASC 326) — — ( 43,956 ) — ( 43,956 )

Balance at January 1, 2020 (as adjusted for change in accounting principle) 1,664 1,537,091 912,599 16,221 2,467,575

Comprehensive income:

Net income — — 214,448 — 214,448

Other comprehensive loss — — — 30,495 30,495

Other comprehensive income — — — 27,899 27,899

Net issuance of 67,577 shares of common stock from exercise of stock options

— 595 — — 595

Impact of adoption of new accounting standards (1)

— — 459 ( 459 ) —

Repurchase of 1,533,560 shares of common stock

5 unchanged sentences

Balances at December 31, 2020 1,651 1,520,617 1,039,370 44,120 2,605,758

1,664 1,537,091 956,555 16,221 2,511,531

Cumulative change in accounting principle (adoption of ASC 326) — — ( 43,956 ) — ( 43,956 )

Balances at January 1, 2020 1,664 1,537,091 912,599 16,221 2,467,575

Comprehensive income:

Net income — — 319,021 — 319,021

Other comprehensive income — — — 27,899 27,899

Other comprehensive loss — — — ( 33,658 ) ( 33,658 )

Net issuance of 176,846 shares of common stock from exercise of stock options

7 unchanged sentences

Balances at December 31, 2021 1,637 1,487,373 1,266,249 10,462 2,765,721

1,651 1,520,617 1,039,370 44,120 2,605,758

Comprehensive income:

Net income — — 305,262 — 305,262

Other comprehensive income — — — ( 33,658 ) ( 33,658 )

Other comprehensive loss — — — ( 315,920 ) ( 315,920 )

Net issuance of 78,954 shares of common stock from exercise of stock options

2 154 — — 156

Issuance of 42,425,352 shares of common stock including approximately $ 2.5 million in certain stock award settlements and stock issuance costs - Happy Bancshares acquisition

424 960,866 — — 961,290

Repurchase of 3,098,531 shares of common stock

5 unchanged sentences

Balances at December 31, 2022 $ 2,034 $ 2,386,699 $ 1,443,087 $ ( 305,458 ) $ 3,526,362

$ 1,637 $ 1,487,373 $ 1,266,249 $ 10,462 $ 2,765,721

(1) Represents the impact of adopting Accounting Standard Update (“ASU”) 2018-02.

See Note 1 to the consolidated financial statements for more information.

See accompanying notes.

1 unchanged sentence

Consolidated Statements of Cash Flows

Year Ended December 31,

(In thousands) 2022 2021 2020

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Depreciation & amortization 31,856 19,481 20,082

(Increase) decrease in value of equity securities ( 7,178 ) 1,978 —

Decrease (increase) in value of equity securities 1,272 ( 7,178 ) 1,978

Amortization of securities, net 20,335 28,516 20,607

2 unchanged sentences

Gain on assets ( 698 ) ( 4,497 ) ( 2,103 )

Provision for credit losses — 112,264 1,325

Provision for credit losses - loans 50,170 — 111,422

Provision for credit losses - unfunded commitments 11,410 ( 4,752 ) 16,989

Provision for credit losses - investment securities 2,005 — 842

Deferred income taxes 2,213 3,868 ( 19,751 )

8 unchanged sentences

Investing Activities

Net increase in federal funds sold — — 325

Net decrease in loans, excluding loans acquired 1,328,378 92,650 245,366

Net (increase) decrease in loans, excluding loans acquired ( 673,883 ) 1,328,378 92,650

Purchases of investment securities – available-for-sale ( 1,258,403 ) ( 1,390,405 ) ( 1,147,897 )

Purchases of investment securities - held-to-maturity ( 674,178 ) — —

Proceeds from maturities of investment securities – available-for-sale 496,551 652,403 774,276

Proceeds from maturities of investment securities – held-to-maturity 501,529 — —

Proceeds from sale of investment securities – available-for-sale 67,349 18,112 —

6 unchanged sentences

Return of investment on cash value of life insurance 277 418 47,258

Net cash proceeds paid – market acquisitions — ( 421,211 ) —

Purchase of marine loan portfolio ( 242,617 ) — —

Net cash proceeds received (paid) – market acquisitions 858,584 — ( 421,211 )

Net cash (used in) provided by investing activities ( 1,024,270 ) 624,660 ( 651,941 )

Home BancShares, Inc.

Consolidated Statements of Cash Flows

(In thousands) 2022 2021 2020

Financing Activities

Net increase in deposits, excluding deposits acquired 1,534,780 1,447,407 378,605

Net (decrease) increase in deposits, excluding deposits acquired ( 2,177,058 ) 1,534,780 1,447,407

Net (decrease) increase in securities sold under agreements to repurchase ( 9,740 ) ( 28,045 ) 25,204

Net (decrease) increase in federal funds purchased — ( 5,000 ) 5,000

Net decrease in FHLB and other borrowed funds — ( 221,439 ) ( 850,954 )

Net decrease in federal funds purchased — — ( 5,000 )

Increase in FHLB and other borrowed funds 601,000 — 1,010,902

Decrease in FHLB and other borrowed funds ( 429,330 ) — ( 1,232,341 )

Retirement of subordinated debentures ( 300,000 ) — —

Proceeds from issuance of subordinated debentures 296,324 — —

Redemption of trust preferred securities ( 96,499 ) — —

Proceeds from exercise of stock options 156 2,374 595

1 unchanged sentence

Dividends paid on common stock ( 128,424 ) ( 92,142 ) ( 87,677 )

Net cash provided by (used in) financing activities 1,372,487 1,133,400 ( 636,409 )

Net cash (used in) provided by financing activities ( 2,314,427 ) 1,372,487 1,133,400

Net change in cash and cash equivalents ( 2,925,525 ) 2,386,527 773,187

9 unchanged sentences

The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”).

The Bank has branch locations in Arkansas, Florida, South Alabama and New York City.

The Bank has branch locations in Arkansas, Florida, South Alabama, Texas and New York City.

The Company is subject to competition from other financial institutions.

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These reclassifications had no effect on net earnings or stockholders’ equity.

New Accounting Pronouncements

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective January 1, 2020.

The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses

as well as the credit quality and underwriting standards of a company’s portfolio.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $ 44.0 million which was recognized through a $ 32.5 million adjustment to retained earnings, net of tax.

This adjustment brought the beginning balance of the allowance for credit losses to $ 146.1 million as of January 1, 2020.

In addition, the Company recorded a $ 15.5 million reserve on unfunded commitments which was recognized through an $ 11.5 million adjustment to retained earnings, net of tax.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30.

In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality.

These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions.

At acquisition, a portion of these loans was recorded as purchased credit impaired loans on a pool by pool basis.

Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools.

The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools.

The projected losses for these loans were less than the total credit mark.

As such, the remaining $ 107.6 million of loans in these pools along with the $ 29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category.

As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality.

Therefore, the Company did not have any PCI loans upon adoption of ASC 326 as of January 1, 2020.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD loans are recorded at the amount paid.

An allowance for credit losses is determined using the same methodology as other loans.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020.

As of December 31, 2019, the Company did not have any other-than-temporarily impaired investment securities.

Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not material.

However, the Company evaluated the investment portfolio during 2020 and determined that an $ 842,000 provision for credit losses was necessary.

No additional provision was deemed necessary during the remainder of 2020 or for the 2021.

See Note 3 for further discussion.

The following table illustrates the impact of the adoption of ASC 326 on the Company’s consolidated balance sheet.

January 1, 2020

As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption

(In thousands)

Allowance for credit losses on loans $ 146,110 $ 102,122 $ 43,988

Allowance for credit losses on OBS credit exposures (included in other liabilities) 15,521 — 15,521

Cash and Cash Equivalents

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If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

The Company has no held-to-maturity or trading securities.

Debt securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes.

The Company has no trading securities.

Debt securities available-for-sale ("AFS") are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes.

Securities that are held as available-for-sale are used as a part of our asset/liability management strategy.

8 unchanged sentences

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Prior to the adoption of ASU 2016-13, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that were deemed to be other than temporary were reflected in earnings as realized losses.

In estimating other-than-temporary impairment losses prior to January 1, 2020, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Debt securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts.

Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security.

The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments .

The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed.

Loans Receivable and Allowance for Credit Losses

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Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index and national retail sales index.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.

The allowance for credit losses is measured based on call report segment as these types of loan exhibit similar risk characteristics.

12 unchanged sentences

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method.

Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation.

Loans evaluated individually that are considered to be impaired are not included in the collective evaluation.

For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

For loans for which a specific reserve is not recorded, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

3 unchanged sentences

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools.

These qualitative factors ("Q-Factor") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.

These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.

The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies;

18 unchanged sentences

Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans.

The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”

Acquisition Accounting and Acquired Loans

The Company accounts for its acquisitions under FASB ASC Topic 805, Business Combinations , which requires the use of the purchase method of accounting.

All identifiable assets acquired, including loans, are recorded at fair value.

In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans.

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations , which requires the use of the purchase method of accounting.

All identifiable assets acquired, including loans, and liabilities assumed are recorded at fair value.

In accordance with ASC 326, the Company records both a discount or premium and an allowance for credit losses on acquired loans.

All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements .

The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

Purchase credit deteriorated (“PCD”) loans are recorded at the amount paid.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans.

An allowance for credit losses is determined using the same methodology as other loans.

For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment.

These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

For further discussion of the Company’s acquisitions, see Note 2 to the Notes to Consolidated Financial Statements.

The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

For further discussion of the Company’s acquisitions, see Note 2 to the Condensed Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

7 unchanged sentences

Bank Premises and Equipment

Bank premises and equipment are carried at cost or fair market value at the date of acquisition less accumulated depreciation.

Bank premises and equipment are carried at cost or fair value at the date of acquisition less accumulated depreciation.

Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets.

7 unchanged sentences

Life insurance owned by the Company is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

During 2019, the Company made a strategic decision to surrender $ 47.5 million of its underperforming separate account bank owned life insurance (“BOLI”).

When a BOLI contract is surrendered the gains within the policy become taxable as well as a 10 % IRS penalty on the gain.

As a result of this BOLI decision, the Company recorded a $ 3.7 million tax expense related to this transaction in 2019.

As a result of this decision, the income earned on the increase in the cash value of life insurance will be lower in future periods.

Intangible Assets

2 unchanged sentences

The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists.

The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis.

The core deposit intangibles are being amortized over 120 months on a straight-line basis.

Goodwill is not amortized, but rather, is evaluated for impairment on at least an annual basis or more frequently if changes or circumstances occur.

13 unchanged sentences

Historically the Company’s policy has been not to invest in derivative type investments.

The Company has standalone derivative financial instruments acquired from Stonegate Bank.

The Company has standalone derivative financial instruments acquired in a previous acquisition.

These derivative financial instruments consist of interest rate swaps and are recognized as assets and liabilities in the consolidated statements of financial condition at fair value.

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The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.

• Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts.

The Company generally satisfies its performance obligations as services are rendered.

The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type.

Fees are collected on a monthly or annual basis.

Earnings per Share

10 unchanged sentences

Diluted earnings per common share $ 1.57 $ 1.94 $ 1.30

As of December 31, 2021, the Company's stock options were dilutive to earnings per share.

However, as of December 31, 2020 and 2019, options to purchase 3.3 million and 3.4 million shares of common stock, respectively, with a weighted average exercise price of $ 19.77 and $ 19.60 , respectively, were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

As of December 31, 2022 and 2021, the Company's stock options were dilutive to earnings per share.

However, as of December 31, 2020, options to purchase 3.3 million shares of common stock with a weighted average exercise price of $ 19.77 were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

Business Combinations

Future Acquisition of Happy Bancshares, Inc.

On September 15, 2021, the Company and Centennial entered into an Agreement and Plan of Merger (the “Agreement”) with Happy Bancshares, Inc., a Texas corporation (“Happy”), and its wholly-owned bank subsidiary, Happy State Bank, a Texas banking association (“HSB”), under which the Company and Centennial will acquire Happy and HSB.

The Agreement, as amended on October 18, 2021 and further amended on November 8, 2021, provides that, in a series of transactions, an acquisition subsidiary of the Company will merge into Happy and Happy will merge into the Company, with the Company as the surviving entity (collectively, the “Merger”).

As soon as reasonably practicable following the Merger, HSB will merge into Centennial, with Centennial as the surviving entity.

Under the terms of the Agreement, as amended, the Company will issue approximately 42.3 million shares of its common stock to the shareholders of Happy upon the completion of the Merger.

No cash consideration will be paid in connection with the Merger, except that holders of outstanding shares of Happy common stock at the time of the Merger will receive cash payments in lieu of any fractional shares of Company common stock to which they are otherwise entitled in connection with the Merger.

In addition, the Company expects to pay an aggregate of up to approximately $ 11.0 million in cash in cancellation of certain stock appreciation rights issued by Happy that remain outstanding at the time of the Merger.

Subject to the terms and conditions set forth in the Agreement, as amended, at the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of Happy will be converted into the right to receive, without interest, 2.17 shares of the Company’s common stock (the “Merger Consideration”).

Each unvested restricted share of Happy common stock outstanding at the Effective Time will fully vest and be converted into the right to receive the Merger Consideration.

In addition, at the Effective Time, each outstanding option to purchase Happy common stock will be cancelled and converted into the right to receive the number of whole shares of the Company’s common stock, together with any cash in lieu of fractional shares, equal to the product of (i) the number of shares of Happy common stock subject to the option, multiplied by (ii) the excess, if any, of the Merger Consideration value over the exercise price of the option, less applicable tax withholdings, divided by (iii) the Company’s Average Closing Price (defined below).

Similarly, each stock appreciation right of Happy outstanding at the Effective Time will be cancelled and converted into the right to receive a cash payment, without interest, equal to the product of (i) the number of shares of Happy common stock subject to the stock appreciation right, multiplied by (ii) the excess, if any, of the Merger Consideration value over the grant price of the stock appreciation right, less applicable tax withholdings.

For purposes of these calculations, the Merger Consideration value will be determined using a volume-weighted average closing price of the Company’s common stock as

reported on the New York Stock Exchange over the 20 consecutive trading day period ending on the third business day prior to the closing of the Merger (“the Company’s Average Closing Price”), multiplied by 2.17 .

The Merger is expected to close during the first quarter of 2022, and is subject to regulatory approvals, and other conditions set forth in the Agreement.

The Company received approval for the merger from the Arkansas State Banking Board and the Arkansas State Bank Commissioner as well as the approval of the shareholders of each company in December of 2021.

Acquisition of Happy Bancshares, Inc.

On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc.

(“Happy”), and merged Happy State Bank into Centennial Bank.

The Company issued approximately 42.4 million shares of its common stock valued at approximately $ 958.8 million as of April 1, 2022.

In addition, the holders of certain Happy stock-based awards received approximately $ 3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $ 962.5 million.

The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 6.69 billion in total assets, $ 3.65 billion in loans and $ 5.86 billion in customer deposits.

Happy formerly operated its banking business from 62 locations in Texas.

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition.

The Company will continue to review the estimated fair values of loans, deposits, intangible assets and other assets, and to evaluate the assumed tax positions and contingencies.

The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by the ASC Topic 805.

Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required.

Fair values were determined based on the requirements of ASC Topic 820.

In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.

The following schedule is a preliminary breakdown of the assets acquired and liabilities assumed as of the acquisition date as adjusted during the measurement period:

Happy Bancshares, Inc.

from Happy Fair Value Adjustments As Recorded by HBI

(Dollars in thousands)

Cash and due from banks $ 112,999 $ ( 446 ) $ 112,553

Interest-bearing deposits with other banks 746,031 — 746,031

Cash and cash equivalents 859,030 ( 446 ) 858,584

Investment securities - available-for-sale, net of allowance for credit losses 1,773,540 8,485 1,782,025

Total investment securities 1,773,540 8,485 1,782,025

Loans receivable 3,657,009 ( 4,389 ) 3,652,620

Allowance for credit losses ( 42,224 ) 25,408 ( 16,816 )

Loans receivable, net 3,614,785 21,019 3,635,804

Bank premises and equipment, net 153,642 ( 12,270 ) 141,372

Foreclosed assets held for sale 193 ( 77 ) 116

Cash value of life insurance 105,049 3 105,052

Accrued interest receivable 31,575 — 31,575

Deferred tax asset, net 32,908 ( 1,092 ) 31,816

Goodwill 130,428 ( 130,428 ) —

Core deposit intangible 10,672 31,591 42,263

Other assets 43,330 15,567 58,897

Total assets acquired $ 6,755,152 $ ( 67,648 ) $ 6,687,504

Demand and non-interest-bearing $ 1,932,756 $ 67 $ 1,932,823

Savings and interest-bearing transaction accounts 3,519,652 — 3,519,652

Time deposits 401,899 903 402,802

Total deposits 5,854,307 970 5,855,277

FHLB and other borrowed funds 74,212 4,118 78,330

Accrued interest payable and other liabilities 50,889 ( 1,892 ) 48,997

Subordinated debentures 159,965 7,625 167,590

Total liabilities assumed 6,139,373 10,821 6,150,194

Total equity assumed 615,779 ( 615,779 ) —

Total liabilities and equity assumed $ 6,755,152 $ ( 604,958 ) $ 6,150,194

Net assets acquired 537,310

Purchase price 962,538

Goodwill $ 425,228

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks, interest-bearing deposits with other banks and federal funds sold – The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired from Happy with an approximately $ 8.5 million adjustment to fair value based upon quoted market prices.

Otherwise the book value was deemed to approximate fair value.

Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and current discount rates.

The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns.

The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

See Note 5 to the Condensed Notes to Consolidated Financial Statements, for additional information related to purchased financial assets with credit deterioration.

Bank premises and equipment – Bank premises and equipment were acquired from Happy with a $ 12.3 million adjustment to fair value.

This represents the difference between current appraisals completed in connection with the acquisition and book value acquired.

Foreclosed assets held for sale – These assets are presented at the estimated fair values that management expects to receive when the properties are sold, net of related costs of disposal.

Cash value of life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Accrued interest receivable – The carrying amount of these assets was deemed a reasonable estimate of the fair value.

Core deposit intangible – This core deposit intangible asset represents the value of the relationships that Happy had with its deposit customers.

The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date.

The $ 903,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be above the current market rates.

FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Accrued interest payable and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to be more or less than book value, such as certain accounts payable and other miscellaneous liabilities.

The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.

Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

During the third and fourth quarters of 2022, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities and received updated information resulting in the revised fair values displayed below.

We updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill.

The changes are gross of taxes and reflected in the following table:

Acquired Asset or Liability Balance Sheet Line Item Provisional Estimate Revised Estimate Increase (Decrease)

(In thousands)

Cash and due from banks Cash and due from banks $ 112,867 $ 112,553 $ ( 314 )

Loans receivable Loans receivable 3,652,706 3,652,620 ( 86 )

Bank premises and equipment, net Bank premises and equipment, net 142,067 141,372 ( 695 )

Deferred tax asset, net Deferred tax asset, net 35,414 31,816 ( 3,598 )

Equity method investments & Other assets Other assets 49,752 58,897 9,145

Goodwill Goodwill 425,375 425,228 ( 147 )

Demand and non-interest bearing deposits Demand and non-interest bearing deposits 1,932,756 1,932,823 67

Accrued expense and other liabilities Accrued interest payable and other liabilities 44,759 48,997 4,238

The impact to the income statement resulting from the changes to the estimated fair values was insignificant.

We continue to analyze the assumptions and related valuation results associated with the acquired assets and assumed liabilities, and accordingly, the valuations of these assets and liabilities are not final as of December 31, 2022.

However, the valuations will be finalized no later than April 1, 2023.

As the valuations remain provisional and subject to updates, the purchase accounting accretion/amortization are also subject to adjustments.

The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy might have appeared had the businesses actually been combined.

The following schedule represents the unaudited pro forma combined financial information as of the years ended December 31, 2022 and 2021, assuming the acquisition was completed as of January 1, 2022 and 2021, respectively:

(In thousands, except per share data)

Total interest income $ 935,168 $ 839,407

Total non-interest income 188,012 190,550

Net income available to all shareholders 406,949 317,190

Basic earnings per common share $ 1.98 $ 1.53

Diluted earnings per common share 1.98 1.53

The unaudited pro-forma consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented and had the impact of possible significant revenue enhancements and expense efficiencies from in-market cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results.

Pro-forma results include Happy merger expenses of $ 49.6 million, provision for credit losses on acquired loans of $ 45.2 million, provision for credit losses on acquired unfunded commitments of $ 11.4 million and provision for credit losses on acquired investment securities of $ 2.0 million for the years ended December 31, 2022 and 2021, respectively.

The pro-forma financial information also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period.

Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD.

For PCD loans, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other loans held-for-investment.

The following table provides a summary of loans purchased as part of the Happy acquisition with credit deterioration at acquisition:

April 1, 2022

(In thousands)

Purchased Loans with Credit Deterioration:

Par value $ 165,028

Allowance for credit losses at acquisition ( 16,816 )

Premium on acquired loans 684

Purchase price $ 148,896

Acquisition of LH-Finance

12 unchanged sentences

Investment Securities

The amortized cost and estimated fair value of investment securities that are classified as available-for-sale are as follows:

The amortized cost and estimated fair value of investment securities that are classified as available-for-sale and held-to-maturity are as follows:

December 31, 2022

Available-for-Sale

Cost Allowance for Credit Losses Net Carrying Amount Gross

(Losses) Estimated

7 unchanged sentences

December 31, 2022

Held-to-Maturity

Cost Allowance for Credit Losses Net Carrying Amount Gross

(Losses) Estimated

(In thousands)

government-sponsored enterprises $ 43,017 $ — $ 43,017 $ — $ ( 3,349 ) $ 39,668

Residential mortgage-backed securities 49,088 — 49,088 24 ( 1,205 ) 47,907

Commercial mortgage-backed securities 85,912 — 85,912 107 ( 2,551 ) 83,468

State and political subdivisions 1,111,693 ( 2,005 ) 1,109,688 65 ( 154,650 ) 955,103

Total $ 1,289,710 $ ( 2,005 ) $ 1,287,705 $ 196 $ ( 161,755 ) $ 1,126,146

December 31, 2021

Available-for-Sale

Cost Allowance for Credit Losses Net Carrying Amount Gross

(Losses) Estimated

6 unchanged sentences

Total $ 3,106,483 $ ( 842 ) $ 3,105,641 $ 41,058 $ ( 26,892 ) $ 3,119,807

On April 1, 2022, the Company completed the acquisition of Happy.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 1.78 billion in investments, net of purchase accounting adjustments.

The Company classified approximately $ 1.12 billion of investments acquired from Happy as held-to-maturity at the acquisition date.

Assets, principally investment securities, having a fair value of approximately $ 2.35 billion and $ 1.15 billion at December 31, 2022 and 2021, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Also, investment securities pledged as collateral for repurchase agreements totaled approximately $ 131.1 million and $ 140.9 million at December 31, 2022 and 2021.

The amortized cost and estimated fair value of securities classified as available-for-sale at December 31, 2021, by contractual maturity, are shown below.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at December 31, 2022, by contractual maturity, are shown below.

Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities not due at a single maturity date are shown separately.

Available-for-Sale

Available-for-Sale Held-to-Maturity

Cost Estimated

Fair Value Amortized

Cost Estimated

(In thousands)

9 unchanged sentences

Total $ 4,445,620 $ 4,041,590 $ 1,289,710 $ 1,126,146

During the year ended December 31, 2022, $ 67.3 million in available-for-sale securities were sold, and no gain or loss was recognized.

During the year ended December 31, 2021, $ 17.9 million in available-for-sale securities were sold, and the gross realized gains on the sales totaled $ 219,000 .

1 unchanged sentence

During the year ended December 31, 2020, no available-for-sale securities were sold.

During the year ended December 31, 2019, $ 1.5 million available-for-sale securities were sold.

The gross realized loss on the sale for the year ended December 31, 2019 totaled approximately $ 2,000 .

The income tax expense/benefit to net security gains and losses was 25.819 % of the gross amounts.

The following shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of December 31, 2022 and 2021:

5 unchanged sentences

(In thousands)

Available-for-sale:

government-sponsored enterprises $ 315,531 $ ( 3,056 ) $ 128,527 $ ( 20,153 ) $ 444,058 $ ( 23,209 )

4 unchanged sentences

Total $ 2,255,449 $ ( 143,387 ) $ 1,348,287 $ ( 264,580 ) $ 3,603,736 $ ( 407,967 )

Held-to-maturity:

government-sponsored enterprises $ 39,668 $ ( 3,349 ) $ — $ — $ 39,668 $ ( 3,349 )

Residential mortgage-backed securities 40,892 ( 1,205 ) — — 40,892 ( 1,205 )

Commercial mortgage-backed securities 65,948 ( 2,551 ) — — 65,948 ( 2,551 )

State and political subdivisions 955,563 ( 154,650 ) — — 955,563 ( 154,650 )

Total $ 1,102,071 $ ( 161,755 ) $ — $ — $ 1,102,071 $ ( 161,755 )

December 31, 2021

10 unchanged sentences

Total $ 1,288,118 $ ( 20,451 ) $ 233,082 $ ( 6,441 ) $ 1,521,200 $ ( 26,892 )

The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments .

Securities that are held as available-for-sale are used as a part of our asset/liability management strategy.

Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale.

The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

3 unchanged sentences

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is

recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell

At December 31, 2021, the Company determined the allowance for credit losses of $ 842,000 , resulting from economic uncertainties related to the COVID-19 pandemic, was adequate for the investment portfolio.

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Debt securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts.

Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security.

The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed.

The Company recorded a $ 2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition.

Of the Company's held-to-maturity securities, $ 1.11 billion, or 86.2 % are municipal securities.

To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method.

The remainder of investments classified as held-to-maturity are U.S.

government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S.

Due to the inherent low risk in these U.S.

government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.

At December 31, 2022, the Company determined the allowance for credit losses of $ 842,000 , resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio.

No additional provision for credit losses was considered necessary for the portfolio.

Available-for-Sale Investment Securities

Year Ended December 31, 2022 Year Ended December 31, 2021

2 unchanged sentences

Beginning balance $ 842 $ 842

Provision for credit loss - investment securities — 842

Provision for credit loss — —

Ending balance, December 31, $ 842 $ 842

For the year ended December 31, 2021, the Company had approximately $ 7.3 million in unrealized losses, which were in continuous loss positions for more than twelve months.

The Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies.

In addition, approximately 55.7 % of the Company’s investment portfolio will mature and be repaid to the Company within five years or less.

Held-to-Maturity Investment Securities

Year Ended Dec 31, 2022

State and Political Subdivisions Other Securities

Allowance for credit losses:

(In thousands)

Beginning balance $ — $ —

Provision for credit loss - acquired securities ( 2,005 ) —

Securities charged-off — —

Recoveries — —

Ending balance, December 31, $ ( 2,005 ) $ —

For the year ended December 31, 2022, the Company had available-for-sale investment securities with approximately $ 264.6 million in unrealized losses, which have been in continuous loss positions for more than twelve months.

The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies.

In addition, approximately 33.0 % of the Company’s available-for-sale investment portfolio will mature and be repaid to the Company within five years or less.

As a result, the Company has the ability and intent to hold such securities until maturity.

1 unchanged sentence

In addition, approximately 60.4 % of the Company’s investment portfolio will mature and be repaid to the Company within five years or less.

As a result, the Company has the ability and intent to hold such securities until maturity.

As of December 31, 2021, the Company's securities portfolio consisted of 1,336 investment securities, 383 of which were in an unrealized loss position.

In addition, approximately 55.7 % of the Company’s investment portfolio was expected to mature and be repaid to the Company within five years or less.

As a result, the Company had the ability and intent to hold such securities until maturity.

As of December 31, 2022, the Company's available-for-sale securities portfolio consisted of 1,642 investment securities, 1,408 of which were in an unrealized loss position.

As noted in the table above, the total amount of the unrealized loss was $ 408.0 million.

3 unchanged sentences

In addition, the other securities portfolio contained $ 35.4 million of unrealized losses on 106 securities.

The unrealized losses on the Company's investments were a result of interest rate changes.

The unrealized losses on the Company's available-for-sale investments were a result of interest rate changes.

The Company expects to recover the amortized cost basis over the term of the securities.

Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company has determined that an additional provision for credit losses is not necessary as of December 31, 2022.

As of December 31, 2022, the Company's held-to-maturity securities portfolio consisted of 507 investment securities, 500 of which were in an unrealized loss position.

As noted in the table above, the total amount of the unrealized loss was $ 161.8 million.

government-sponsored enterprises portfolio contained unrealized losses of $ 3.3 million on 5 securities.

The state and political subdivisions portfolio contained $ 154.7 million of unrealized losses on 479 securities.

The residential mortgage-backed securities portfolio contained $ 1.2 million of unrealized losses on 6 securities, and the commercial mortgage-backed securities portfolio contained $ 2.6 million of unrealized losses on 10 securities.

The unrealized losses on the Company's held-to-maturity investments were a result of interest rate changes.

The Company expects to recover the amortized cost basis over the term of the securities.

Because the decline in market value was attributable to changes in interest rates and not credit quality, the Company has determined that an additional provision for credit losses is not necessary as of December 31, 2022.

The following table summarizes bond ratings for the Company's held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of December 31, 2022:

State and Political Subdivisions Other Securities Total

(In thousands)

Aaa/AAA $ 233,117 $ 43,017 $ 276,134

Aa/AA 849,386 — 849,386

A 27,593 — 27,593

Not rated 1,597 — 1,597

Agency Backed — 135,000 135,000

Total $ 1,111,693 $ 178,017 $ 1,289,710

Income earned on securities for the years ended is as follows:

2 unchanged sentences

Available-for-sale $ 71,352 $ 30,054 $ 32,596

Held-to-maturity 20,581 — —

Available-for-sale 19,168 19,642 16,158

Held-to-maturity 9,188 — —

Total $ 120,289 $ 49,696 $ 48,754

17 unchanged sentences

Loans receivable, net $ 14,119,811 $ 9,599,375

On April 1, 2022, the Company completed the acquisition of Happy.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 3.65 billion in loans.

During the year ended December 31, 2022, the Company sold $ 4.1 million of the guaranteed portion of certain SBA loans, which resulted in a gain of approximately $ 183,000 .

During the year ended December 31, 2021, the Company sold $ 22.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 2.4 million.

During the year ended December 31, 2020, the Company sold $ 7.0 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 645,000 .

During the year ended December 31, 2019, the Company sold $ 20.2 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 1.6 million.

Mortgage loans held for sale of approximately $ 79.9 million and $ 72.7 million at December 31, 2022 and 2021, respectively, are included in residential 1-4 family loans.

6 unchanged sentences

These commitments are derivative instruments and their fair values at December 31, 2022 and 2021 were not material.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD loans are recorded at the amount paid.

Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans.

An allowance for credit losses is determined using the same methodology as other loans.

For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

As a result of the acquisition of LH-Finance in 2020, the Company held approximately $ 448,000 and $ 760,000 in PCD loans, as of December 31, 2021 and December 31, 2020, respectively .

The Company held approximately $ 142.5 million and $ 448,000 in PCD loans, as of December 31, 2022 and 2021, respectively.

This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

Allowance for Credit Losses, Credit Quality and Other

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , effective January 1, 2020.

The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables.

It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet credit exposures.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

This adjustment brought the beginning balance of the allowance for credit losses to $ 146.1 million as of January 1, 2020.

In addition, the Company recorded a $ 15.5 million reserve on unfunded commitments as of January 1, 2020, which was recognized through an $ 11.5 million adjustment to retained earnings, net of tax.

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of Company’s loan pools.

25 unchanged sentences

Based on this analysis during the first quarter of 2021, management determined that changes to several of the economic factors for the various loss driver segments were necessary.

The identified loss drivers by segment are included below as of December 31, 2021 and 2020, respectively.

December 31, 2021

The identified loss drivers by segment are included below as of both December 31, 2022 and 2021, respectively.

Loss Driver Segment

13 unchanged sentences

Other Consumer - SPF 6d National Unemployment (%)

December 31, 2020

Loss Driver Segment

Call Report Segment(s)

Modeled Economic Factors

1-4 Family Construction

National Unemployment (%) & Housing Price Index (%)

All Other Construction

National Unemployment (%) & Commercial Real Estate Price Index (%)

1-4 Family Revolving HELOC & Junior Liens

National Unemployment (%) & Housing Price Index (%)

1-4 Family Senior Liens

National Unemployment (%) & Housing Price Index (%)

Owner Occupied CRE

National Unemployment (%) & Commercial Real Estate Price Index (%)

Non-Owner Occupied CRE

National Unemployment (%) & Commercial Real Estate Price Index (%)

Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other

4a, 3, 9a, 9b1, 9b2, Other

National Unemployment (%) & National Retail Sales (%)

Consumer Auto

National Unemployment (%) & National Retail Sales (%)

Other Consumer

National Unemployment (%) & National Retail Sales (%)

Other Consumer - SPF

National Unemployment (%)

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis.

8 unchanged sentences

These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral.

Generally, we will loan up to 85 % of the value of improved property, 65 % of the value of raw land

and 75 % of the value of land to be acquired and developed.

Generally, we will loan up to 85 % of the value of improved property, 65 % of the value of raw land and 75 % of the value of land to be acquired and developed.

A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

21 unchanged sentences

The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

Despite the improvements in the economic and public health outlooks in the United States during 2021, the emergence of the Delta variant during the second quarter and the Omicron variant during the fourth quarter have resulted in significant uncertainty about the future impact of the pandemic on our business, results of operations and financial condition.

As a result, the Company determined that a negative provision for credit losses was not appropriate at this time, and the current level of the allowance for credit losses was considered adequate as of December 31, 2021.

During the year ended December 31, 2021, the Company recorded a negative provision for unfunded commitments of $ 4.8 million.

This was primarily due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position.

During the year ended December 31, 2022, the Company recorded a $ 5.0 million provision for credit losses on loans due to increased loan growth.

However, the Company determined that no additional provision was necessary for unfunded commitments as the current levels of the reserve was considered adequate.

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition.

The Company completed the acquisition of Happy on April 1, 2022.

As a result, the Company recorded $ 4.4 million in net loan discounts and a $ 16.8 million increase in the allowance for credit losses related to PCD loans.

In addition, the Company recorded a $ 45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $ 11.4 million provision for credit losses on acquired unfunded commitments.

During the first quarter of 2020, we completed the acquisition of $ 406.2 million of loans from LH-Finance.

12 unchanged sentences

Beginning balance $ 28,415 $ 87,218 $ 48,458 $ 53,062 $ 19,561 $ 236,714

Allowance for credit losses on PCD loans - Happy acquisition 950 9,283 980 5,596 7 16,816

Loans charged off ( 1 ) — ( 446 ) ( 9,773 ) ( 7,047 ) ( 17,267 )

1 unchanged sentence

Net loans recovered (charged off) 404 967 ( 327 ) ( 8,993 ) ( 6,082 ) ( 14,031 )

Provision for credit loss - acquired loans 7,205 18,711 7,380 11,303 571 45,170

Provision for credit loss - loans ( 4,731 ) ( 22,331 ) ( 5,528 ) 28,386 9,204 5,000

12 unchanged sentences

Beginning balance $ 32,861 $ 88,453 $ 53,216 $ 46,530 $ 24,413 $ 245,473

Impact of adopting ASC

326 ( 5,296 ) 15,912 16,680 11,584 5,108 43,988

Allowance for credit losses

on PCD loans — — — — 357 357

Loans charged off — ( 646 ) ( 545 ) ( 8,242 ) ( 2,228 ) ( 11,661 )

1 unchanged sentence

Net loans recovered (charged off) 58 139 138 ( 7,651 ) ( 1,443 ) ( 8,759 )

Provision for credit loss -

loans 12,835 41,406 16,549 25,877 5,446 102,113

Provision for credit loss -

acquired loans — — — — 9,309 9,309

Provision for credit loss - loans ( 4,504 ) ( 1,374 ) ( 4,896 ) 14,183 ( 3,409 ) —

Balance, December 31

11 unchanged sentences

Beginning balance $ 26,433 $ 33,529 $ 20,135 $ 16,615 $ 5,410 $ 102,122

Impact of adopting ASC 326 ( 5,296 ) 15,912 16,680 11,584 5,108 43,988

Allowance for credit losses on PCD

loans - LH Finance acquisition — — — — 357 357

Loans charged off ( 1,218 ) ( 3,041 ) ( 485 ) ( 7,764 ) ( 1,978 ) ( 14,486 )

3 unchanged sentences

(charged off) ( 1,111 ) ( 2,394 ) ( 148 ) ( 7,546 ) ( 1,217 ) ( 12,416 )

Provision for loan losses 6,486 ( 6,310 ) ( 5,864 ) 3,457 3,556 1,325

Provision for credit loss - loans 12,835 41,406 16,549 25,877 5,446 102,113

Provision for loan losses - acquired

loans — — — — 9,309 9,309

Balance December 31

5 unchanged sentences

Still Accruing

(In thousands)

Commercial real estate loans

14 unchanged sentences

Still Accruing

(In thousands)

Commercial real estate loans

48 unchanged sentences

The Company had $ 221.1 million and $ 331.5 million in collateral-dependent impaired loans for the periods ended December 31, 2022 and 2021, respectively.

The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology.

This involved assigning a 15 % discount of par for these impaired loans.

The 15 % figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market.

In the event of default, liquidation would be achieved through a loan sale.

The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

Loans that do not share risk characteristics are evaluated on an individual basis.

33 unchanged sentences

Non-accruing loans were $ 51.0 million and $ 47.2 million at December 31, 2022 and 2021, respectively.

Interest recognized on impaired loans during the years ended December 31, 2021, 2020 and 2019 was approximately $ 14.7 million, $ 3.4 million and $ 2.4 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the years ended December 31, 2022, 2021 and 2020 was approximately $ 9.6 million, $ 14.7 million and $ 3.4 million, respectively.

The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

Credit Quality Indicators.

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Alabama and New York.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans.

77 unchanged sentences

Total agricultural 82,344 72,286 55,050 30,479 13,480 82,421 10,751 346,811

Total commercial real estate

loans $ 949,558 $ 755,921 $ 975,677 $ 733,231 $ 412,922 $ 1,591,810 $ 450,889 $ 5,870,008

Residential real estate

Total commercial real estate loans $ 1,916,645 $ 1,719,653 $ 742,859 $ 641,813 $ 727,802 $ 1,698,912 $ 666,456 $ 8,114,140

Residential real estate loans

Residential 1-4 family

87 unchanged sentences

Total agricultural 25,785 29,105 8,133 7,534 5,758 45,268 9,091 130,674

Total commercial real estate

loans $ 715,849 $ 1,106,817 $ 971,679 $ 668,877 $ 653,276 $ 1,505,545 $ 483,746 $ 6,105,789

Residential real estate

Total commercial real estate loans $ 949,558 $ 755,921 $ 975,677 $ 733,231 $ 412,922 $ 1,591,810 $ 450,889 $ 5,870,008

Residential real estate loans

Residential 1-4 family

154 unchanged sentences

Construction/land development 1 216 177 — — 177

Agricultural 1 282 262 — — 262

Residential real estate loans

13 unchanged sentences

Residential 1-4 family 15 2,328 844 117 332 1,293

Multifamily residential 1 1,130 1,144 — — 1,144

Total real estate 31 10,099 6,041 741 417 7,199

4 unchanged sentences

December 31, 2022 December 31, 2021

Number of Loans

Recorded Balance

Number of Loans

Recorded Balance

(Dollars in thousands)

21 unchanged sentences

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The purchase price of the loans at acquisition was $ 1.3 million, and a $ 357,000 allowance for credit losses was recorded on these loans at acquisition along with a $ 17,000 non-credit premium.

The allowance and non-credit premium resulted in a par value of $ 1.0 million for these loans at acquisition.

As of December 31, 2021 and 2020, the balance of purchase credit deteriorated loans was approximately $ 448,000 and $ 760,000 , respectively.

Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at December 31, 2021 and 2020, were as follows:

As of December 31, 2022 and 2021, the balance of purchase credit deteriorated loans was approximately $ 142.5 million and $ 448,000 , respectively.

This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

Goodwill and Core Deposit Intangible

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposit intangible at December 31, 2022 and 2021, were as follows:

December 31, 2022 December 31, 2021

4 unchanged sentences

December 31, 2022 December 31, 2021

Core Deposit and Other Intangibles (In thousands)

Core Deposit Intangible (In thousands)

Balance, beginning of period $ 25,045 $ 30,728

2 unchanged sentences

Balance, end of year $ 58,455 $ 25,045

The carrying basis and accumulated amortization of core deposits and other intangibles at December 31, 2021 and 2020 were:

The carrying basis and accumulated amortization of core deposits intangibles at December 31, 2022 and 2021 were:

December 31, 2022 December 31, 2021

3 unchanged sentences

Net carrying amount $ 58,455 $ 25,045

Core deposit and other intangible amortization expense for the years ended December 31, 2021, 2020 and 2019 was approximately $ 5.7 million, $ 5.8 million and $ 6.3 million, respectively.

Core deposit and other intangibles are tested annually for impairment during the fourth quarter.

Core deposit intangible amortization expense for the years ended December 31, 2022, 2021 and 2020 was approximately $ 8.9 million, $ 5.7 million and $ 5.8 million, respectively.

The core deposit intangible is tested annually for impairment during the fourth quarter.

During the 2022 review, no impairment was found.

Including all of the mergers completed as of December 31, 2021, HBI’s estimated amortization expense of core deposits and other intangibles for each of the years 2022 through 2026 is approximately:

2022 – $ 5.7 million ;

2023 – $ 5.5 million ;

Including all of the mergers completed as of December 31, 2022, HBI’s estimated amortization expense of the core deposit intangible for each of the years 2023 through 2027 is approximately:

2023 – $ 9.7 million;

1 unchanged sentence

2025 – $ 8.0 million;

The carrying amount of the Company’s goodwill was $ 973.0 million at both December 31, 2021 and 2020.

2026 – $ 7.8 million and 2027 – $ 6.6 million.

The carrying amount of the Company’s goodwill was $ 1.40 billion and $ 973.0 million at December 31, 2022 and 2021, respectively.

Goodwill is tested annually for impairment during the fourth quarter or more frequently if changes or circumstances occur.

6 unchanged sentences

These equity securities without a readily determinable fair value were $ 135.3 million and $ 88.2 million at December 31, 2022 and December 31, 2021, respectively, and are accounted for at cost.

The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321.

The Company also has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321.

These equity securities without a readily determinable fair value were $ 80.6 million and $ 36.4 million at December 31, 2022 and 2021, respectively.

There were no transactions during the period that would indicate a material change in fair value.

Therefore, these investments were accounted for at cost, less impairment.

The aggregate amount of time deposits with a minimum denomination of $250,000 was $ 333.2 million and $ 321.6 million at December 31, 2022 and 2021, respectively.

3 unchanged sentences

The following is a summary of the scheduled maturities of all time deposits at December 31, 2022 (in thousands):

One month or less $ 137,785

Over 1 month to 3 months 154,614

Over 3 months to 6 months 159,366

Over 6 months to 12 months 257,611

Over 12 months to 2 years 138,863

Over 2 years to 3 years 15,870

Over 3 years to 5 years 16,369

Over 5 years 409

2023 $ 862,018

Thereafter 661

Total time deposits $ 1,043,234

3 unchanged sentences

For the years ended December 31, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 129.0 million and $ 151.2 million, respectively.

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2021 and 2020 is presented in the following tables:

December 31, 2021

Overnight and

Continuous Up to 30

Days Greater than

90 Days Total

(In thousands)

Securities sold under agreements to repurchase:

government-sponsored enterprises $ 8,433 $ — $ — $ — $ 8,433

Mortgage-backed securities 7,920 — — — 7,920

State and political subdivisions 122,173 — — — 122,173

Other securities 2,360 — — — 2,360

Total borrowings $ 140,886 $ — $ — $ — $ 140,886

December 31, 2020

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2022 and 2021 is presented in the following table:

December 31, 2022 December 31, 2021

Overnight and

Continuous Up to 30

Days Greater than

90 Days Total

Continuous Total Overnight and

Continuous Total

(In thousands)

6 unchanged sentences

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 400.0 million at both December 31, 2021 and 2020.

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 650.0 million and $ 400.0 million at December 31, 2022 and 2021, respectively.

The Company had no other borrowed funds as of December 31, 2022 or December 31, 2021.

At December 31, 2021 and December 31, 2020, the entire $ 400.0 million balance was classified as long term advances.

The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76 % to 2.26 % and are secured by loans and investments securities.

At December 31, 2022, $ 50.0 million and $ 600.0 million of the outstanding balance were classified as short-term and long-term advances, respectively.

At December 31, 2021, the entire $ 400.0 million balance was classified as long term advances.

The FHLB advances mature from 2023 to 2033 with fixed interest rates ranging from 2.26 % to 4.84 % and are secured by loans and investments securities.

Expected maturities could differ from contractual maturities because the FHLB has have the right to call or the Company has the right to prepay certain obligations.

1 unchanged sentence

Maturities of borrowings with original maturities exceeding one year at December 31, 2022, are as follows (in thousands):

By Contractual

2023 $ 50,000 $ 50,000

2024 — 400,000

2025 100,000 100,000

2026 100,000 100,000

Thereafter 400,000 —

11 unchanged sentences

Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75 % during the first five years and at a floating rate of 1.85 % above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

$ 3,093 $ 3,093

Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00 % during the first five years and at a floating rate of 2.00 % above the three- month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

15,464 15,464

Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84 % during the first five years and at a floating rate of 1.45 % above the three- month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

25,774 25,774

Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29 % during the first five years and at a floating rate of 2.50 % above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty

16,495 16,495

Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15 % above the three-month LIBOR rate, reset quarterly, currently callable without penalty

1 unchanged sentence

Subordinated debt securities

Subordinated notes issued in 2020, due 2030, fixed rate of 5.500 % during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty

Subordinated notes, net of issuance costs, issued in 2022, due 2032, fixed rate of 3.125 % during the first five years and at a floating rate of 182 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2027 without penalty

Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625 % during the first five years and at a floating rate of 3.575 % above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty

299,824 299,199

Total $ 440,420 $ 371,093

Trust Preferred Securities .

The Company holds trust preferred securities with a face amount of $ 73.3 million which are currently callable without penalty based on the terms of the specific agreements.

The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations.

However, now that the Company has exceeded $15 billion in assets, the Tier 1 treatment of the Company’s outstanding trust preferred securities will be phased out upon completion of the acquisition of Happy Bancshares, but these securities will still be treated as Tier 2 capital.

Distributions on these securities are included in interest expense.

Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust.

The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the subordinated debentures held by the trust.

The Company wholly owns the common securities of each trust.

Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures.

The Company’s obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.

On April 1, 2022, the Company acquired $ 23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements.

During the second and third quarters of 2022, the Company redeemed, without penalty, the $ 23.2 million of the trust preferred securities acquired from Happy.

In addition, during the second and third quarters, the Company also redeemed, without penalty, the $ 73.3 million of trust preferred securities held prior to the Happy acquisition.

As a result, the Company no longer holds any trust preferred securities.

Subordinated Debt Securities .

On April 1, 2022, the Company acquired $ 140.0 million in aggregate principal amount of 5.500 % Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $ 144.4 million which included fair value adjustments.

The 2030 Notes are unsecured, subordinated debt obligations of the Company and will mature on July 31, 2030.

From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50 % per annum, payable in arrears on January 31 and July 31 of each year.

From and including July 31, 2025 to, but excluding, the maturity date or earlier redemption, the 2030 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate (SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345 %, payable quarterly in arrears on January 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025.

The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100 % of the principal amount of the 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2030 Notes for U.S.

federal income tax purposes or preclude the 2030 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended.

In each case, the redemption would be at a redemption price equal to 100 % of the principal amount of the 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On January 18, 2022, the Company completed an underwritten public offering of $ 300.0 million in aggregate principal amount of its 3.125 % Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs of approximately $ 296.4 million.

The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032.

From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125 % per annum, payable in arrears on January 30 and July 30 of each year.

From and including January 30, 2027 to, but excluding, the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

The Company may, beginning with the interest payment date of January 30, 2027 , and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100 % of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027 , at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S.

federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended.

In each case, the redemption would be at a redemption price equal to 100 % of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 3, 2017, the Company completed an underwritten public offering of $ 300.0 million in aggregate principal amount of its 5.625 % Fixed-to-Floating Rate Subordinated Notes due 2027 (the “Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $ 297.0 million .

The Notes are unsecured, subordinated debt obligations and mature on April 15, 2027.

From and including the date of issuance to, but excluding April 15, 2022, the Notes bear interest at an initial rate of 5.625 % per annum.

From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the Notes will bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575 %;

provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be zero.

The Company may, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, redeem the Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

The Company may also redeem the Notes at any time, including prior to April 15, 2022, at its option, in whole but not in part, if:

(i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S.

federal income tax purposes;

(ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes;

or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended;

in each case, at a redemption price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest to but excluding the redemption date.

The Notes provide the Company with additional Tier 2 regulatory capital to support expected future growth.

The Company is currently considering paying off the Notes.

The Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027.

From and including the date of issuance to, but excluding April 15, 2022, the Notes bore interest at an initial rate of 5.625 % per annum.

From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the Notes were to bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575 %;

provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR would have been deemed to be zero.

The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $ 300.0 million.

Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S.

Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.

The following is a summary of the components of the provision for income taxes for the years ended December 31, 2022, 2021 and 2020:

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Effective income tax rate 22.64 % 23.45 % 22.78 %

During 2019, the Company made a strategic decision to surrender $ 47.5 million of its underperforming BOLI.

When a BOLI contract is surrendered the gains within the policy become taxable as well as a 10 % IRS penalty on the gain.

As a result of this BOLI decision, the Company recorded a $ 3.7 million tax expense related to this transaction in 2019.

The effective tax rate excluding the BOLI tax expense was 23.97 % for the year ended December 31, 2019.

The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

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Real estate owned 103 109

Unrealized loss on Securities AFS 98,587 —

Loan discounts 7,007 4,169

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The Company and its subsidiaries file income tax returns in the U.S.

federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kentucky, Maryland, Mississippi, New York, New Jersey, Oklahoma, Missouri, Pennsylvania, Tennessee, Texas and Wisconsin.

federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Mississippi, Missouri, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin.

The Company is no longer subject to U.S.

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Stock Repurchases

On January 22, 2021, the Board of Directors of the Company authorized the repurchase of up to an additional 20,000,000 shares of the Company’s common stock under the previously approved stock repurchase program, which brought the remaining balance of authorized shares to repurchase to 39,752,000 shares.

During 2022, the Company utilized a portion of this stock repurchase program in order to repurchase a total of 3,098,531 shares with a weighted-average stock price of $ 22.84 per share.

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Stock Compensation Plans

The Company has a stock option and performance incentive plan known as the Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “Plan”).

The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results.

The Plan provides for the granting of incentive and non-qualified stock options and other equity awards, including the issuance of restricted shares.

As of December 31, 2021, the maximum total number of shares of the Company’s common stock available for issuance under the Plan was 13,288,000 .

At December 31, 2021, the Company had 1,625,136 shares of common stock remaining available for future grants and 4,640,152 shares of common stock reserved for issuance pursuant to outstanding awards under the Plan.

On January 21, 2022, the Company’s Board of Directors adopted, and on April 21, 2022, the Company's shareholders approved, the Home BancShares, Inc.

2022 Equity Incentive Plan (the “2022 Plan”).

The 2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “2006 Plan” and, together with the 2022 Plan, the “Plans”), which expired on February 27, 2022.

The purpose of the Plans is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results.

As of December 31, 2022, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 Plan was 14,788,000 shares (representing 13,288,000 shares approved for issuance under the 2006 Plan plus 1,500,000 shares added upon adoption of the 2022 Plan).

At December 31, 2022, the Company had 2,762,049 shares of common stock remaining available for future grants and 5,732,565 shares of common stock reserved for issuance pursuant the Plans.

The intrinsic value of the stock options outstanding at December 31, 2022, 2021, and 2020 was $ 7.8 million, $ 13.1 million and $ 5.0 million, respectively.

The intrinsic value of the stock options vested at December 31, 2022, 2021 and 2020 was $ 7.5 million, $ 10.7 million and $ 4.7 million, respectively.

The intrinsic value of the stock options exercised during 2021, 2020 and 2019 was $ 2.0 million, $ 719,000 , and $ 332,000 , respectively.

The intrinsic value of the stock options exercised during 2022, 2021 and 2020 was $ 1.8 million, $ 2.0 million, and $ 719,000 , respectively.

Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards, which are expected to be recognized over the vesting periods, was approximately $ 5.2 million as of December 31, 2022.

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Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options.

The weighted-average fair value of options granted during the year ended December 31, 2021 was $ 11.11 .

There were no options granted during the year ended December 31, 2020.

The weighted-average fair value of options granted during the year ended December 31, 2022 was $ 5.21 , and the weighted-average fair value of options granted during the year ended December 31, 2021 was $ 11.11 .

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.

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Risk-free interest rate 2.82 % 0.75 % Not Applicable

Expected life of options 6.5 years Not Applicable 6.5 years

Expected life of options 6.5 years 6.5 years Not Applicable

The following is a summary of currently outstanding and exercisable options at December 31, 2022:

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401(k) and Employee Stock Ownership Plan

The Company has a retirement savings 401(k) plan in which substantially all employees may participate.

The Company has a combined 401(k) plan and employee stock ownership plan, named the Home BancShares, Inc.

401(k) and Employee Stock Ownership Plan, in which substantially all employees may participate.

The Company matches employees’ contributions based on a percentage of salary contributed by participants.

Effective February 2019, the Company adopted a combined 401(k) plan and employee stock ownership plan, named the Home BancShares, Inc.

401(k) and Employee Stock Ownership Plan, in place of its existing 401(k) plan.

The Company filed a registration statement on Form S-8 with the Securities and Exchange Commission on February 22, 2019 to register $ 2,000,000 shares of the Company’s common stock that participants may invest in through the plan.

As of December 31, 2022, participants in the plan held approximately 1.3 million shares of the Company’s stock.

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Short-term leases are leases having a term of twelve months or less.

Upon adoption of ASU 2016-02, the Company elected the package of practical expedients whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.

In accordance with ASU 2018-11, the Company elected the practical expedient whereby we elected to not separate nonlease components from the associated lease component of our operating leases.

As a result, we account for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease.

In accordance with ASU 2018-11, the Company does not separate nonlease components from the associated lease component of our operating leases.

As a result, the Company accounts for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease.

The Company recognizes short-term leases on a straight-line basis and does not record a related ROU asset and liability for such leases.

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The right-of-use asset is included in bank premises and equipment, net , and the lease liability is included in accrued interest payable and other liabilities .

The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of December 31, 2021:

The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of December 31, 2022 and 2021:

December 31, 2022

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Present value of net future minimum lease payments $ 45,954

December 31, 2021

Thereafter 24,999

Total future minimum lease payments $ 56,187

Discount effect of cash flows ( 13,778 )

Present value of net future minimum lease payments $ 42,409

Additional information (dollar amounts in thousands):

December 31, 2022

December 31, 2021

December 31, 2020

Lease expense:

2021 2020 2019

Operating lease expense $ 7,995 $ 7,857 $ 8,138

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Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.

The Company’s primary market areas are in Arkansas, Florida, South Alabama and New York.

The Company’s primary market areas are in Arkansas, Florida, Texas, South Alabama and New York.

The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.

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Residential real estate loans represented 16.1 % and 15.8 % of total loans receivable and 66.0 % and 56.3 % of total stockholders’ equity at December 31, 2022 and 2021, respectively.

Approximately 69.8 % of the Company’s total loans and 74.6 % of the Company’s real estate loans as of December 31, 2021, are to borrowers whose collateral is located in Alabama, Arkansas, Florida and New York, the states in which the Company has its branch locations.

As of December 31, 2021 , the markets in which we operate have begun to experience economic recovery .

However, there is still a significant amount of uncertainty related to the COVID-19 pandemic which may slow the anticipated economic recovery.

The Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of December 31, 2021 .

During the year ended December 31, 2021 , the Company recorded a negative provision for unfunded commitments of $ 4.8 million.

This was primarily due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position.

The financial statements have been prepared using values and information currently available to the Company.

The Company is continuing to closely monitor the situation.

Approximately 79.7 % of the Company’s total loans and 84.6 % of the Company’s real estate loans as of December 31, 2022, are to borrowers whose collateral is located in Alabama, Arkansas, Florida, Texas and New York, the states in which the Company has its branch locations.

Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

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Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

Financial Assets and Liabilities Measured on a Recurring Basis

Available-for-sale securities are the only material instruments valued on a recurring basis which are held by the Company at fair value.

The Company does not have any Level 1 securities.

Primarily all of the Company's securities are considered to be Level 2 securities.

These Level 2 securities consist primarily of U.S.

Available-for-sale securities - the Company's available-for-sale securities are considered to be Level 2 securities.

The Level 2 securities consist primarily of U.S.

government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions.

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Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

As of December 31, 2021 and 2020, Level 3 securities were immaterial.

In addition, there were no material transfers between hierarchy levels during 2021 and 2020.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices.

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The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.

Financial Assets and Liabilities Measured on a Nonrecurring Basis

Impaired loans, which include individually evaluated loans that are collateral dependent, are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value.

Loan impairment is reported when full payment under the loan terms is not expected.

Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent.

Held-to-maturity securities – the Company's held-to-maturity securities are considered to be Level 2 securities.

The Level 2 securities consist primarily of U.S.

government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions.

For these securities, the Company obtains fair value measurements from an independent pricing service.

The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.

Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Impaired loans - Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent.

A portion of the allowance for credit losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for loan losses .

If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for credit losses.

The fair value of loans with specific allocated losses was $ 168.6 million and $ 280.0 million as of December 31, 2022 and 2021, respectively.

The increase in collateral-dependent impaired loans was due to the Company changing the valuation for lodging and assisted living loans to a market price valuation methodology.

This involved assigning a 15 % discount of par for these impaired loans.

The 15 % figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market.

In the event of default, liquidation would be achieved through a loan sale.

The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

This valuation is considered Level 3, consisting of appraisals of underlying collateral.

The Company reversed $ 380,000 and $ 1.3 million of accrued interest receivable when impaired loans were put on non-accrual status during the years ended December 31, 2021 and 2020, respectively.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring basis which are held by the Company at fair value, less estimated costs to sell.

The Company reversed $ 1.1 million and $ 380,000 of accrued interest receivable when impaired loans were put on non-accrual status during the years ended December 31, 2022 and 2021, respectively.

Foreclosed assets held for sale - Foreclosed assets held for sale are held by the Company at fair value, less estimated costs to sell.

At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses.

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The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral.

As of December 31, 2021 and 2020, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 1.6 million and $ 4.4 million, respectively.

As of December 31, 2022 and 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 546,000 and $ 1.6 million, respectively.

No foreclosed assets held for sale were remeasured during the year ended December 31, 2022.

Foreclosed assets held for sale with a carrying value of approximately $ 217,000 were remeasured during the year ended December 31, 2020, resulting in a write-down of approximately $ 167,000 .

No foreclosed assets held for sale were remeasured during the year ended December 31, 2021.

Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis.

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As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount.

During the reported periods, collateral discounts ranged from 25 % to 50 % for commercial and residential real estate collateral.

Fair Values of Financial Instruments

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Cash and cash equivalents $ 724,790 $ 724,790 1

Investment securities - available for sale 4,041,590 4,041,590 2

Investment securities - held-to-maturity 1,287,705 1,126,146 2

Loans receivable, net of impaired loans and allowance 13,929,892 14,240,833 3

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other equity investments 215,952 215,952 3

Marketable equity securities 52,034 52,034 1

Financial liabilities:

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Cash and cash equivalents $ 3,650,315 $ 3,650,315 1

Investment securities - available for sale 3,119,807 3,119,807 2

Loans receivable, net of impaired loans and allowance 9,319,421 9,503,261 3

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other equity investments 124,638 124,638 3

Marketable equity securities 17,110 17,110 1

Financial liabilities:

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The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated

financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

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Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common equity Tier 1 ("CET1") and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes that, as of December 31, 2022, the Company meets all capital adequacy requirements to which it is subject.

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The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.

In July 31, 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III:

A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”).

Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $ 500 million or more, and savings and loan holding companies.

Basel III became effective for the Company and its bank subsidiary on January 1, 2015.

The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625 % level and increased by 0.625 % on each subsequent January 1, until it reached 2.5 % on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009.

The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies.

Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital.

Basel III amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories.

In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5 % “common equity Tier 1 risk-based capital” ratio, a 4 % “Tier 1 leverage capital” ratio, a 6 % “Tier 1 risk-based capital” ratio and an 8 % “total risk-based capital” ratio.

Basel III amended the prompt corrective action rules to incorporate a CET1 capital requirement and to raise the capital requirements for certain capital categories.

In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5 % CET1 risk-based capital ratio, a 4 % Tier 1 leverage ratio, a 6 % Tier 1 risk-based capital ratio and an 8 % total risk-based capital ratio.

The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution.

Under Basel III, the criteria for a well-capitalized institution are now:

a 6.5 % “common equity Tier 1 risk-based capital” ratio, a 5 % “Tier 1 leverage capital” ratio, an 8 % “Tier 1 risk-based capital” ratio, and a 10 % “total risk-based capital” ratio.

a 6.5 % CET1 risk-based capital ratio, a 5 % Tier 1 leverage ratio, an 8 % Tier 1 risk-based capital ratio, and a 10 % total risk-based capital ratio.

As of December 31, 2022, the Bank met the capital standards for a well-capitalized institution.

The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were 15.37 %, 11.11 %, 15.98 %, and 19.77 %, respectively, as of December 31, 2021.

The Company’s CET1 risk-based capital ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio were 12.91 %, 10.86 %, 12.91 %, and 16.54 %, respectively, as of December 31, 2022.

The Company’s actual capital amounts and ratios along with the Company’s bank subsidiary are presented in the following table.

Actual Minimum Capital

Requirement –

Basel III Minimum To Be

Well-Capitalized

Corrective Action

Actual Minimum Capital Requirement –Basel III Minimum To Be Well-Capitalized Under Prompt Corrective Action Provision

Amount Ratio Amount Ratio Amount Ratio

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Additional Cash Flow Information

In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $ 6.69 billion in assets, including $ 858.6 million in cash and cash equivalents, assumed $ 6.15 billion in liabilities, and issued approximately 42.4 million shares of its common stock valued at approximately $ 958.8 million as of April 1, 2022.

In connection with the LH-Finance acquisition, accounted for using the purchase method, the Company acquired approximately $ 409.1 million in assets, including $ 407.4 million in loans as of February 29, 2020, and paid $ 421.2 million in cash.

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Share-based compensation 9,133 8,848 8,607

(Increase) decrease in value of equity securities ( 7,178 ) 1,978 —

Decrease (increase) in value of equity securities 1,272 ( 7,178 ) 1,978

Gain on assets — — ( 320 )

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Proceeds from sale of premises and equipment, net — — 1,841

Net cash proceeds from Happy Bancshares, Inc.

Purchases of equity securities ( 49,975 ) ( 13,276 ) ( 15,015 )

Proceeds from sale of equity securities 13,778 16,381 —

Redemptions of other investments 2,899 — —

Net cash provided by (used in) investing activities 168,130 3,105 ( 13,174 )

Cash flows from financing activities

Retirement of subordinated debentures ( 300,000 ) — —

Proceeds from the issuance of subordinated debentures 296,324 — —

Redemption of trust preferred securities ( 96,499 ) — —

Proceeds from exercise of stock options 156 2,374 595

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Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment.

Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss should not exceed the total amount of goodwill allocated to that reporting unit.

The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis.

Early adoption was permitted for annual or interim goodwill impairment testing performed after January 1, 2017.

The Company has goodwill from prior business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value.

During 2019, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company’s goodwill was not considered impaired.

The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

The current accounting policies and processes have not changed, except for the elimination of the Step 2 analysis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement .

The new guidance modifies disclosure requirements related to fair value measurement.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Implementation on a prospective or retrospective basis varies by specific disclosure requirement.

The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, that amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project.

The internal-use software guidance states that only qualifying costs incurred during the application development stage can be capitalized.

The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with the applicable guidance.

The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements .

The amendments in this Update reinstate the exception in Topic 842 for lessors that are not manufacturers or dealers.

Specifically, those lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset.

However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820.

In addition, the amendments in this Update address the concerns of lessors within the scope of Topic 942 about where “principal payments received under leases” should be presented.

Specifically, lessors that are depository and lending institutions within the scope of Topic 942 will present all “principal payments received under leases” within investing activities.

Finally, the amendments in this Update clarify the FASB’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements.

The effective date for the amendments in this update is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

The amendments clarify certain aspects of the accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12 and 2016-01, respectively).

The amendments made to the provisions of ASU 2016-13 are related to accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, cost to sell financial assets when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, amortized cost basis of line of credit arrangements that are converted to term loans and extension and renewal options that are not unconditionally cancelable by the entity.

The effective date and transition requirements for the amendments in this update are the same as the effective dates and transition requirements in ASU 2016-13.

The significant amendments made to the provisions of ASU 2017-12 are related to partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis adjustments, disclosure of fair value hedge basis adjustments, consideration of the hedged contractually specified interest rate under the hypothetical derivative method, application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments and transition guidance for reclassifying prepayable debt securities from HTM to available-for-sale.

The amendments to ASU 2017-12 are effective as of the beginning of the first annual reporting period beginning after the date of issuance of ASU 2019-04.

The amendments made to the provisions of ASU 2016-01 indicate that the measurement alternative for equity securities without readily determinable fair values represent a nonrecurring fair value measurement under ASC 820, and therefore, such securities should be remeasured at fair value when an entity identifies an orderly transaction “for an identical or similar investment of the same issuer.” The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief .

The amendments provide transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13.

Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that were previously recorded at amortized cost and are within the scope of the credit losses guidance in ASC 326-20, are eligible for the fair value option under ASC 825-10, and are not held-to-maturity debt securities.

The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted the standard guidance January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses.

The amendments clarify that the allowance for credit losses for purchased financial assets with credit deterioration should include expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity.

The amendments also clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, the expected recoveries should not include any amounts that result in an acceleration of the noncredit discount.

An entity may include increases in expected cash flows after acquisition.

Also, the amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumption in effect immediately before the restructuring.

The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.

In addition, the amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial asset to apply the practical expedient.

The entity applying the practical expedient should estimate the expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral that is greater than the fair value of the collateral securing the financial asset.

An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero.

The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted the standard guidance January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

Section 4013 of the CARES Act provides financial institutions the temporary option to not apply ASC Subtopic 310-40 , Receivables—Troubled Debt Restructurings by Creditors , to certain loan modifications related to COVID-19 made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after termination of the President’s national emergency declaration for COVID-19.

On December 28, 2020, an extension of section 4013 of the CARES Act, provided institutions with an extension of the temporary option to not apply ASC Subtopic 310-40 until January 1, 2022.

Further, financial institutions do not need to determine impairment associated with certain loan concessions that would otherwise have been required for TDRs (e.g., interest rate concessions, payment deferrals, or loan extensions).

The Company has relied on Section 4013 of the CARES Act in accounting for loan modifications since the fourth quarter of 2020.

As of December 31, 2021, the Company had 26 remaining loan modifications for a total of $ 190.7 million.

All of the customers currently on deferment chose principal deferment only and now have returned to paying interest monthly.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848):

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ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022.

Subsequent Events

On January 18, 2022, the Company completed an underwritten public offering of $ 300 million in aggregate principal amount of its 3.125 % Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”) pursuant to an underwriting agreement dated January 13, 2022 (the “Underwriting Agreement”) with Piper Sandler & Co., as underwriter.

The Underwriting Agreement contains customary representations, warranties and covenants and includes the terms and conditions for the sale of the Notes, indemnification and contribution obligations and other terms and conditions customary in agreements of this type.

The Notes were issued pursuant to the Subordinated Indenture, dated as of April 3, 2017 (the “Base Indenture”), between the Company and U.S.

Bank National Association, as trustee (the “Trustee”), as supplemented by the Second Supplemental Indenture, dated January 18, 2022 (the “Supplemental Indenture”), between the Company and the Trustee.

The Base Indenture, as amended and supplemented by the Supplemental Indenture, governs the terms of the Notes and provides that the Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032.

From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the Notes will bear interest at an initial rate of 3.125 % per annum, payable in arrears on January 30 and July 30 of each year.

From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the Supplemental Indenture, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

The Company may also redeem the Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the Notes for U.S.

federal income tax purposes or preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended.

In each case, the redemption would be at a redemption price equal to 100 % of the principal amount of the Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On February 4, 2022, the Company completed the purchase of the performing marine loan portfolio of Utah-based LendingClub Bank (“LendingClub”).

Under the terms of the purchase agreement with LendingClub, the Company acquired yacht loans totaling approximately $ 238 million.

This portfolio of loans will be housed within the Company's Shore Premier Finance division, which will be responsible for servicing the acquired loan portfolio and originating new loan production.

Upon completion of the acquisition, SPF has total loans receivable of approximately $ 1.13 billion.

In March 2022, the FASB issued ASU 2022-02, " Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

ASU 2022-02 is effective for entities that have adopted ASU No.

2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

These amendments should be applied prospectively.

However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Early adoption is permitted if an entity has adopted ASU 2016-13.

If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period.

An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

The Company is currently evaluating the potential impacts related to the adoption of the ASU.

In December 2022, the FASB issued ASU 2022-06, " Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

" These amendments extend the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

ASU 2022-06 was effective upon issuance.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk